Flutter bottom line being hit by new regulations

Flutter Entertainment, the rebranded Paddy Power Betfair, has seen its profit before tax drop by 24 per cent for the first half of 2019, with the company citing changes in regulations and taxation as a major factor in the performance.

Flutter, which operates Paddy Power, Betfair, FanDuel, Sportsbet and the recently acquired Adjarabet, saw profit before tax drop to £81m despite an 18 per cent increase in revenues for the half to £1.02bn.

Among the regulatory headwinds the company experienced were:

An increase in remote gaming duty in the UK to 21 per cent from 15 per cent.

New lower staking limits on gaming machines in UK retail.

A doubling of tax on sports-betting stakes in Ireland to two per cent.

New Australian point of consumption taxes in:

Victoria

New South Wales

Western Australia

Australian Capital Territory

An increase in taxes across:

Italy (20 per cent to 25 per cent on online gaming)

Sweden (18 per cent gambling tax)

Romania (Two per cent tax on deposits on top of existing 16 per cent online revenue tax)

The switching off of operations in grey markets including:

Switzerland

Serbia

Slovakia

Albania

Chief Executive Peter Jackson commented: “We have had another productive six months at Flutter Entertainment. All divisions are performing strongly on an underlying basis and have responded well to the challenges faced. We are pleased with the progress we are making to build a more diversified and sustainable business.”

Flutter’s online business saw a three per cent fall in underlying EBITDA to £118m with total net revenue increasing by eight per cent in H1 to £497m. Excluding the newly acquired Adjarabet however, revenue only increased by 1 per cent.

Gaming revenue was up 29 per cent in H1, or eight per cent excluding Adjarabet. The company said that the Paddy Power brand “continues to enjoy good momentum in recreational customer growth which has been a key driver of gaming revenue growth”.

It did however warn that the enhanced responsible gambling measures the company is taking are having an impact on higher value activity across both UK facing brands, and more particularly Betfair. This is partially offsetting good mass market growth with gaming in Q2 up 27 per cent, or three per cent excluding Adjarabet.

Adjarabet revenues are mainly derived from gaming and Flutter stated pelasure with how the business is performing since acquisition with proforma gaming revenue up 25 per cent, in constant currency, on the prior comparative period.

Sports revenue was flat year on year, with sportsbook increasing by one per cent and exchange and B2B revenues declining by two per cent.

In the US the company has a positive outlook where its interests comprise of FanDuel, horseracing TV and wagering network TVG, and New Jersey online casino Betfair Casino. Proforma revenue in the US division was 46 per cent higher, reflecting five per cent revenue growth in the established sports businesses (daily fantasy and TVG), strong growth in Casino gaming revenue and £35m of sports betting net revenue.

Jackson commented: “In the US, our FanDuel brand and product proposition enabled us to take 50 per cent of the sports-betting market in New Jersey in H1. We are delighted with this performance, and have been encouraged by the regulatory momentum that has seen 10 states regulate online sports betting since the repeal of PASPA.

“Cross-sell is an important contributor to our success, with around half our customers in New Jersey coming from our existing daily fantasy business, while strong cross-sales have delivered 15 per cent market share in online casino. We have recently gone live in Pennsylvania, where we are one of the first operators to launch online, and we hope to replicate our success there too.”

Flutter’s Australian brand Sportsbet “delivered a strong first half with great momentum in the business”. This translates to net revenue increasing by 16 per cent with the blended net revenue margin of 9.8 per cent matching the expected margin in the half. This also meant that underlying EBITDA was close to flat year-on-year despite a £24m headwind from the introduction of POC in the majority of states on 1 January, as well as some additional product fee increases.

Jackson added: “In Australia, Sportsbet’s ongoing delivery of innovative products, appealing marketing and recreational focus has led to excellent performance. Our decision to increase investment ahead of the introduction of point of consumption tax has been vindicated, with Sportsbet’s earnings close to flat despite this very significant tax increase.”

In UK and Ireland retail the introduction of the £2 stake limit for FOBTs in the UK on April 1 saw a drop of 44 per cent in gaming machine revenues for Q2, just slightly above the company’s estimated 33 per cent to 43 per cent decrease. There was good news with sportsbook revenue growing by five per cent, driven by a four per cent increase in stakes, but the retail division overall saw a 26 per cent decline in underlying EBITDA to £26m.

Jackson concluded: “In summary, I am pleased with what we have achieved in the first half and we are confident we can make further good progress in H2.”

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